Debt-service coverage ratio

(redirected from Debt-Service Coverage Ratios)

Debt-service coverage ratio

Earnings before interest and income taxes, divided by interest expense plus the quantity of principal repayments divided by one minus the tax rate.

Debt-Service Coverage Ratio

1. In investment real estate, the ratio of annual net operating income on a piece of investment property to its annual debt service. Banks use the DSCR to help determine whether to make or refinance loans for investment property. A DSCR equal to or greater than 1 indicates that the debtor is able to service the debt on the income from the investment property. In personal finance, banks usually require a DSCR of at least 1 to make such a loan, while they generally expect a ratio of 1.2 for commercial projects.

2. In government finance, the ratio of annual export earnings to its annual debt service on external debt.

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Wells Fargo Securities said debt-service coverage ratios improved modestly last year to 1.78x from 1.76x in 2014, "but the improvement came in a year that saw the average loan coupon decline 28 basis points," the report said.

CMBS issuance up, underwriting deteriorates

Traditional fixed-rate mortgages have encountered decreases in debt-service coverage ratios (DSCR) and increases in loan to value (LTV), and the borrower's economic incentive for loan repayment has changed for the worst.

Impressive performance of commercial real estate mortgages

The policy changes announced in Mortgagee Letter 2010-21 will affect all multifamily rental programs and include the following: revised underwriting standards to raise debt-service coverage ratios; lower loan-to-value (LTV) and loan-to-cost (LTC) ratios; increased project reserves and sponsor equity investment; and limited sponsor cash-out.

New FHA oversight changes for multifamily lenders, underwriters

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